Relationship between Corruption and FDI Inflow: A Causality Test

  • Prof. Dr. Abdelhamid A. Mahboub College of Business Administration (CBA), University of Business and Technology (UBT), Jeddah, Dhaban Campus, p.o. box 3335, 21448 Jeddah, Saudi Arabia
  • Assist. Prof. Dr. Hatem Hassan Garamon University of Business and Technology, College of Business Administration, Jeddah, Dhaban Campus, p.o. box 3335, 21448 Jeddah, Saudi Arabia
Keywords: corruption, foreign direct investment, Granger causality

Abstract

This study examines the relationship between the inflow of foreign direct investment and corruption. By using 2006 – 2015 time series data from 19 developed countries and 18 developing countries, it starts by testing the Granger causality between these two variables. It finds that causality direction goes from corruption to foreign direct investment. After making the time series data stationary, the study runs regression analysis for each country group separately. Significant and strong impact of corruption on foreign direct investment is found for each group, and the impact is even stronger for the developed countries. Data from each group could not support the hypothesis of ‘greasing the wheels of business’, which is used for justifying soft treatment of corruption in some countries. Policy implication is to stand strong against corruption in order to promote the inflow of foreign direct investment.

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Published
2019-05-15
How to Cite
A. Mahboub, A. and Garamon, H. H. (2019) “Relationship between Corruption and FDI Inflow: A Causality Test”, Mednarodno inovativno poslovanje = Journal of Innovative Business and Management, 11(1), pp. 93-99. doi: 10.32015/JIMB/2019-11-1-10.
Section
Original article